Conventional Loan Seller Concession Maximums: What You Need To Know
Closing costs can be a huge, unexpected expense when purchasing a home. Think $8,000 to $10,000 or more on a typical purchase.
But current mortgage rules allow sellers and other parties to pay all or part of your closing costs.
Here’s how to get the maximum seller concession possible.
Conventional Loan Seller Concession Maximums
Seller concessions, also known as seller-paid closing costs or seller credits, are grouped in with other types of closing assistance called Interested Party Contributions, or IPCs.
IPCs are any funds issued to the buyer from a party that stands to gain from the transaction:
Real estate agent
An organization with co-ownership of any of the above
Interestingly, the lender is not considered an interested party and may give you a closing cost credit from its profit margin without affecting IPC maximums.
Total seller concessions plus any other IPCs must not exceed the following:
Primary Residence IPC
Second Home IPC
Investment Property IPC
The above percentages are based on the home price. For example, you could receive up to $9,000 (3%) in seller concessions for a $300,000 home, assuming it's your primary residence.
Keep in mind that the above only applies to conventional loans underwritten by Fannie Mae and Freddie Mac rules.
Other maximum seller concessions are as follows.
VA loans: All normal closing costs plus an additional 4%
USDA loans: 6%
If for some reason you receive more seller concessions than conventional loans allow, you might consider changing a different loan type.
What Seller Concessions Can Be Used For
You can use seller concessions and other IPCs toward:
Loan closing costs like title, escrow, and appraisal charges
Items the lender requires you to prepay like property taxes and homeowner’s insurance
Loan origination points
Up to 12 months of HOA dues
Most other costs of getting a mortgage
Lenders do not allow you to use interested party contributions toward your down payment, financial reserves, or to meet minimum contribution rules for the loan. You also may not receive cash back at closing unless it’s a refund of your earnest money.
However, IPCs can indirectly help you qualify for the loan. For example, you have $10,000 in savings. The down payment requirement is $9,000 and closing costs are another $9,000, for a total of $18,000 required to close. A seller credit of $9,000 would lower your cash requirement enough to qualify.
Beware of contributions that are not disclosed to the lender. One extreme example is if the seller “accidentally” leaves a 1966 Ford Mustang in the garage when he moves out as an added bonus for buying the home. In reality, it’s an undisclosed contribution that could make the loan due and payable.
Other examples are undisclosed second mortgages from the seller, covering moving expenses, or any other item of value meant to entice you to buy the home. It’s best to steer clear of these offers.
What If I Have Too Much in Seller Concessions?
It’s a good problem to have: the seller will give you more than your closing cost total.
The solution is simple: lower your interest rate.
A rate reduction will require higher discount and origination charges. These will eat up any excess seller concessions.
Another solution is to ask the seller to reduce the purchase price in lieu of a larger credit. For example, the seller offers $15,000 in closing cost credits on a $300,000 home. Your closing costs are only $10,000. You could ask for $10,000 in seller concessions and a new price of $295,000.
How To Get Seller Concessions
Your ability to get seller concessions largely depends on the local housing market and the home itself.
Homes that sit on the market a long time are good candidates for seller concessions. The seller may be desperate to offload the property. Likewise, sellers may offer concessions in markets where there are more homes than buyers.
Leveraging the home inspection is a great way to get seller funds. Many sellers don’t want to do repairs when they are discovered during the inspection. Some will give you a closing cost credit in lieu of the repair.
Your real estate agent knows best whether a seller might entertain a request for closing cost help.
Seller Concessions Can Help You Afford A Home
Upfront costs can be insurmountable, especially as closing cost amounts rise with inflation.
Getting help from the seller to reduce or eliminate your closing cost bill could help you finally buy a home.
Tim Lucas spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. Tim has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, My Mortgage Insider, and more.